The Federal Government’s new retirement savings plan, the Pooled Registered Pension Plan (PRPP), has attracted some rather negative comments. The critics make some good points, leaving me to wonder if the PRPP is one plan we can do without.
It’s aimed at employees of small- and medium-sized businesses without pension plans, and self-employed individuals. Gail Bebee, author of No Hype – The Straight Goods on Investing Your Money, thinks many in this group will still retire poor because employers are not required to offer the plan and employees can opt out of it. Besides, she says, RRSPs already offer a similar retirement option for this group, so why create more government bureaucracy to administer yet another plan?
Adrian Mastracci, a “fee-only” portfolio manager at KCM Wealth Management Inc., comments, “It’s time to welcome a newly-minted savings plan to the retirement labyrinth.” Labyrinth, indeed. To highlight the absurd level of complexity in the Canadian retirement system, he tallies up “the flavours of registered plans that investors may already have” and comes up with 15, including the CPP, LRSP (Locked-in Retirement Savings Plan) and LIF (Life Income Fund).
Blogger Canadian Financial DIY has a good post (“Pooled Retirement Pension Plan Draft Legislation Revealed – Will PRPP Help?”) summarizing reaction to the PRPP. He makes a valid point about low-income workers getting “scr**ed just like they do now with the RRSP,” because it’s unlikely their tax savings from contributions will exceed the tax paid in retirement. “It is quite clear that anyone earning less than $37,000 is better off using a TFSA,” he argues.
There are a couple of other complaints. First, there is no advice-giving component included in the PRPP structure. Second, unlike CPP, it’s not really a pension plan in the sense of providing a secure, guaranteed income in old age. Instead it tracks the up and down movements of stock and bond markets.
So what we are left with, I fear, is the kind of complexity only financial institutions and advisers might love because of administrative and other fees. The people who like to game regulatory environments (or generally find ways to take advantage of loopholes spawned by growing complexity) will have more material to work with. And let’s not forget the expansion in government bureaucracy and jobs created for civil servants. Hey, its win-win-win for everybody except the targeted beneficiaries of the program—three out of four can’t be bad!